Financial Liberalization and Credit to the Private Sector Components

Financial Liberalization and Credit to the Private Sector Components

Author by Dr. Andy Okwu

Journal/Publisher: International Journal Of Advanced Research In Social Sciences And Humanities

Volume/Edition: 1

Language: English

Pages: 11 - 26

Abstract

The aim of the study was to ascertain the effect of liberalising the Nigerian financial system on credit components in the private sector of the economy, therein investigating the possibility of credit crunch. Employing data from 1970 to 2009, sourced from the Central Bank of Nigeria Statistical Bulletins, on an Autoregressive Distributed Lag (ARDL) Model to test for the long and short run impacts of financial liberalization and the presence of credit crunch in the private sector, the results revealed that liberalising the Nigerian financial system had boomerang effects on the credits allocated to the sub-sector in the long run (except for mining and quarrying), and in the short run, financial liberalization was in all insignificant and negative. On investigating the presence of credit crunch in the long and short run, the results lead to the conclusion that Deposit Money Banks (DMBs) in Nigeria had a strong discriminating credit behaviour towards the real sectors (Agriculture, Manufacturing and Mining and Quarrying) and the SMEs, as credit crunch was present in these sectors in both the short and long run as indicated by the inverse relationship between increasing deposit liabilities that make up savings and the credit that flows to these subsectors. However, their preference was observed in the significant positive flow of savings in form of credits to services, real estate, commerce and others (private individuals, professional, and government). Suggesting that credit crunch does not exist in these sectors as reflected when aggregate credit is reported


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